By LANCE GAY
Scripps Howard News Service
January 05, 2006
So why are taxpayers getting out their sheets of 2-cent stamps in preparation for Sunday, when the cost of first-class mail increases from 37 cents to 39 cents?
In its 2005 annual report, the U.S. Postal Service says it is not only operating debt-free with its smallest work force since 1985, but delivering more mail to more households than ever. The agency, once mired in debt, has enjoyed three years of profitability.
"Financially, we are in the best position we've been since the 1970s," boasted Postmaster General John Potter.
Rick Merritt, executive director of PostalWatch.org, a Virginia-based agency watchdog, says the reason for the rate increase is pure politics. He contends the postal service is trying to force Congress to let the agency stop accumulating funds to offset its $75 billion in unfunded health and pension liabilities, mainly in promises to future retirees.
"Since the beginning of the postal service, this is the most politicized rate increase ever," Merritt charged. In spite of the black ink, he's forecasting that more increases in postage rates are in the works. "It's hard to believe there won't be another rate increase" in 2007, he said.
The Postal Service Board of Governors, which approved the rate increase last year, acknowledged the reason for the hikes is to ensure the agency banks $3.1 billion in contributions to its retirement benefits this year.
In approving the increases, Jim Miller, chairman of the board, said, "These increases will allow the postal service to meet the obligations established by Congress to place funds in escrow in 2006."
"Were it not for this escrow requirement, we would not have filed this rate increase request," the service said.
But analysts note the rate increase is a double-edged sword. The service's own reports show that rate hikes are suppressing the volume of first-class mail - the most lucrative category of mail going through the service.
More Americans are using electronic alternatives to the postal system's monopoly on mail.
While the service said the overall volume of mail increased by 54 billion pieces last year over 2004, the share of first-class mail declined. From 1999 to 2005, the amount of first-class mail dropped by 10 billion pieces a year. From the time of Benjamin Franklin, the first U.S. postmaster general, until 2003, first-class mail was the largest category of mail.
Rep. Tom Davis, R-Va., chairman of the House Government Reform Committee, says the agency is in a "death spiral" with increasing rates causing declining volume.
Davis noted the economic stakes are high. The postal service is the focal point of a $900 billion industry, employing 9 million Americans in such diverse fields as manufacturing, advertising, publishing and finance.
The service has already made major productivity improvements, using automation to shed more than 100,000 employees since 1999 to a work force of 704,000 today. But strong opposition both in Congress and in affected neighborhoods have blocked major cost-cutting moves that could save billions by closing some of the 37,000 local post offices.
Fierce competition by FedEx and United Parcel Service has also taken away business the postal service once monopolized. The impact of the private companies has prompted the service to contract with the FedEx fleet of planes to transport some of the government's mail.
The House last year passed "reform" legislation on an overwhelming 410-20 vote that would give the postal service broader authority to negotiate lower rates with high-volume mailers and hitch future increases in first-class rates to inflation.
But the White House threatened a veto of the measure because it also would allow the postal service to reduce its $3 billion annual payments for its unfunded liabilities, and the legislation is currently languishing in the Senate. The service argues that its unfunded liabilities are $27 billion higher than they should be because the agency is carrying the costs of military retirement benefits paid to its employees who formerly worked for the Pentagon.
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